Black friday gift, paper box with red silk big round ribbon bow isolated on white backgroundA good friend called me recently with a question for one of his clients.  The client, an elderly client with health problems, wanted to know if the payments she has been making to her caregivers could be treated as non-taxable gifts, or if she has to report the payments to the IRS as wages? Continue Reading Love Don’t Cost a Thing? Drawing the Line Between Wages and Gifts

Cryptocurrency SavingsCryptocurrency is more accessible than ever before. Banks are continuing to both implement procedures for and, in some cases, develop their own cryptocurrencies. Paypal allows users in the U.S. to buy, sell and hold select cryptocurrencies directly through PayPal and it will enable cryptocurrency as a funding source for purchases in 2021. Volatility in the price of cryptocurrencies continues, and is likely to continue, but it is becoming a more recognized investment and method of payment. As more taxpayers integrate cryptocurrency into their finances, they should consider tax implications. Here are some things to remember about current or future cryptocurrency transactions and investment. Continue Reading Taxpayer Guidelines for Cryptocurrency in 2021

irsThe Washington Post published an article on April 8, 2015 titled “In Dallas, the IRS says it can’t chase tax cheats who owe less than $1 million.”  Here is a section of the article (emphasis added):

If these taxpayers are delinquent on $900,000, for example, the IRS won’t go after them; budget reductions have forced the revenue collection staff to train its firepower on cheats who owe $1 million or more.

I have to say, sorry, we can’t get that money,” said Richard Christian, supervisory revenue officer for the Dallas area.  “Nobody’s ever going to knock on their door.”

Amazing that the IRS would publically say something like this.  That being said, if you are in a hole with the IRS, your best option is to work with them to get them paid ASAP.  Avoiding the IRS is never a good idea.

Bloomberg BusinessWeek authors Devin Leonard and Richard Rubin published a great article this month about the current dysfunction at the IRS caused by underfunding and IRS scandal.

The IRS is not at the top of anyone’s “favorite” list.  Now even IRS employees are hating life and moral is at an all time low.  Here are some interesting excerpts:

  • IRS employees are being vilified (thank you Tea Party Scandal)
  • IRS employees are having to buy their own pens and paper clips due to budget shortfalls.
  • Employees computers are constantly crashing due to insufficient tech support.
  • IRS will not allow employees to speak to other tax professionals without approval.
  • IRS annual budget has fallen 1.2 billion.
  • 40% of phone calls seeking IRS assistance actually receive it.
  • Walk-in Assistance at all time lows
  • 19% fewer criminal investigations
  • 46,000 fewer IRS audits

The way things are going Ted Cruz may get his wish and the IRS will be dismantled.

The Supreme Court is hearing oral arguments Wednesday, March 4 on certain aspects of the Affordable Care Act.  This has the potential to unravel President Barack Obama’s beloved health care plan.

Another aspect of Obamacare that will affect many people is the excise tax on “Cadillac” health care plans.  A Cadillac plan is one that costs over certain thresholds.  Those thresholds for 2018 are:

  • Self-Only Coverage – $10,200
  • Family Coverage – $27,500

The costs of health care are exploding and this has caused employers to move towards high deductible health care plans.  The idea is to promote more cost-conscious consumerism.  Many employers think this has succeeded.  These plans are cheaper for employers, but much of the burden of the plan when health care is needed falls on employees and their families.

For instance, it is not uncommon for a high deductible health care plan to have a $10,000 deductible for a family.  For most Americans – having to pay $10,000 (pre or post tax) is a very huge imposition.  Those types of plans are potentially Cadillac plans.  Hard to believe right…

So what happens if you have a Cadillac Plan?

If the aggregate cost of your employer-sponsored plan exceeds the limits above, then there is a 40% excise tax.

That is a huge cost for employers and will likely lead to the quality of health insurance being driven down further.

Maybe that is President Obama’s goal – he wants everyone to be driving a broken down Yugo – not that fancy Cadillac.

The IRS is currently asking for public comment on developing regulatory guidance.  Hopefully, changes will be made this may or this may be the death of Obamacare.

Every year the IRS sends out its “Dirty Dozen” list.  This is a compilation of the most prevalent tax scams, with the intent to inform and warn taxpayers of tax related rip-offs.

The very first on the list involves phone scams.  The IRS warning reads as follows:

Phone Scams: Aggressive and threatening phone calls by criminals impersonating IRS agents remains an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent months as scam artists threaten police arrest, deportation, license revocation and other things. The IRS reminds taxpayers to guard against all sorts of con games that arise during any filing season.

Just last week a client of mine received a call from such a potential scammer.  Fortunately, the client was not home when the call came in and the person left a message.  The message stated that they were about to institute a law suit to collect taxes and foreclose on their home.

All of this is a complete fraud – the IRS will never make such a call.  They operate by sending such documents via mail.

After the client told me about the message, I called the area code 202 (Washington, DC) number that was left for my client.  The phone rang about eight times before a person answered.  The person had a very thick foreign accent and the call quality was not good.  It gave me the impression this person was not in the United States.  Here is the play by play:

  1. What IRS office are you calling from? Answer – the main IRS office in Washington DC.
  2. What address is that? Answer – 1111 Constitutional Ave (which actually is an IRS address)
  3. What is your employee ID number? Answer – IRM2076 (IRS employee IDs do not have letters)
  4. Sorry didn’t get your name? Answer – hard to spell foreign sounding name.
  5. Can you spell that for me? Answer – first name is spelled “F-#-@-K” and last name is “Y-O-U” (real letters were used)

Then the man starts to laugh and quickly hangs up.

This type of criminal fraud is unfortunately rampant this tax season.  CBS This Morning had a news piece on this issue a few days ago.

It is a very common story for small businesses to get behind on paying employment taxes.  Federal employment taxes are largely made up of FICA and withholding taxes.  The IRS is especially keen on businesses who fail to pay these taxes.  Not only is the government out the money it should be receiving, but it also has to pay out refunds and provide benefits.  In many ways it is a double loss.

The Department of Justice issued a press release regarding the wireless technology company Distributive Networks LLC.  Its owner, Kevin Bertram, pleaded guilty in federal court to willfully failing to pay more than $900,000 in employment taxes.

According to the press release, Bertram neither accounted for nor paid employment taxes due and owed to the IRS.  Over a two year period Bertram failed to file IRS Forms 941 and failed to pay $927,922 in employment taxes that he had withheld from his employees’ wages.

He is now looking at spending up to 5 years in “Club Fed” and a fine of up to $250,000.  He will still likely be on the hook for paying back the tax bill as well.

Failing to take care of employment taxes is probably the worst decision a small business owner can make.  It is very enticing to take a “short term” loan on the back of the Federal Government – but this will lead to personal liability and potential criminal problems.

There are remedies for this problem, but quick action is needed.

CNN recently released a fascinating look at the computers the IRS uses in “IRS Says It’s Using Technology From JFK’s Time.” IRS Commissioner John Koskinen states that the IRS computer system is “like driving a Model T that now has a great GPS System and wonderful sound system.”

It is common knowledge that the Internal Revenue Code and related rules and regulations are antiquated.  The complexity is difficult and necessitates professional tax assistance.  This can be true for even simple tax returns.

Congress loves to legislate through the tax code – so I doubt this will change anytime soon.

What does need to change – and change soon is the need for good “customer service” at the IRS. Tax practitioners are growing more and more frustrated with the inability to get simple issues resolved in a timely manner. Much of this is due to the dysfunction with the IRS’ computer system.

As someone who calls the IRS on a near daily basis, the chances are very high that when you finally get to a live person – that their computer will not work correctly.  So you will have to repeat the process another day. That costs time and money.

The cost to our economy by having a ridiculously slow and business unfriendly IRS has got to be astronomical.

What can you do when the IRS is misbehaving and it directly affects you?

You will have to fight them, but the law allows you to recover your litigation costs if you win.

As many know, the IRS has had a very troubled recent past (i.e. Lois Lerner).  Those problems keep getting worse, especially with IRS budget cuts.  Anecdotal stories lead me to believe that IRS employee morale is at all time low.

The new U.S. v. Baker case out of New Hampshire came out in the taxpayer’s favor because the IRS tried to foreclose on a property which they had no rights to do so.

The gist of the case is that the district court granted an ex-wife’s request for an award of litigation costs because it found that IRS’s argument—that it had a lien against her ex-husband with respect to real property that he had transferred to her pursuant to the couple’s divorce—was based on an untenable reading of First Circuit precedent and New Hampshire law.

So what do you need to provide to get your fees paid?

Section 7430 of the Internal Revenue Code provides that a taxpayer who is the “prevailing party” in any administrative or court proceeding regarding the:

  • determination of any tax, penalty, or interest under the Internal Revenue Code.
  • collection of any tax, penalty, or interest under the Internal Revenue Code.
  • refund of any tax, penalty, or interest under the Internal Revenue Code.

Recovery of such costs is subject to limitations:

  • the taxpayer must have “exhausted administrative remedies
  • the taxpayer must not have “unreasonably protracted” the proceedings
  • the taxpayer must meet financial eligibility requirements.
  • the taxpayer will not be treated as a prevailing party where IRS proves its position in the proceeding was “substantially justified.”

The IRS is auctioning off a deferred compensation arrangement Darryl Strawberry had with the Mets.  Minimum bid is $550,000 for a payment stream that is estimated to be well over $1 million.  Get your bid in by January 20th if you really want it.  See the IRS Notice for more details.

According to an Article by Darren Rovell of ESPN, Mr. Strawberry’s tax problems stem from as far back as 1987 and as current as 2004.

As most can imagine, the IRS’ ability to seize assets to pay back taxes is very broad.

The basic rule is the IRS can get all your property and your rights to property. 

To make determinations about what your property or rights to property is – courts first look to state law.

Once a determination has been made that you have property then the IRS can take it.  This is pretty much without regard to restrictions that may be placed on the property as is often the case with retirement plans.

Mr. Strawberry’s legal and personal struggles have been well documented over the years.  It is truly sad to see such a talent have some many problems.

It is very unusual for the IRS to have taken these steps to collect the taxes owed.  In my experience, it does not happen unless the IRS has no other resort.

Like with most problems, IRS problems are best met head on.  Ignoring the IRS is not a good solution.